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Boeing sees demand for existing, re-engined 737s

There’s enough demand for current Boeing 737 airliners to justify continuing to churn out more while the company also markets a version updated with new engines, Chairman, President and CEO Jim McNerney said Wednesday.

Next-Generation 737s are much more efficient than the airplanes they’re replacing, McNerney noted during a conference call to discuss third-quarter results.

“People would rather have the NGs in the meantime and move into the MAX later, rather than go through the bathtub of an old airplane for the next five years,” he said. “We’re in this sweet spot where we’re seeing demand for both.”

A depiction of a future Boeing 737 MAX 8. (Boeing)

Earlier this week, Teal Group analyst Richard Aboulafia questioned Boeing and Airbus’ plans to continue raising rates on their 737 and A320 families while rolling out updated versions.

“I can’t imagine why customers would line up to take record numbers of the last copies produced of the older models, particularly if traffic growth stays anemic,” he wrote. “Ramping up right up until the new models enter service in 2015/2017 makes no sense for anyone involved.”

Existing orders support the higher rates, McNerney said Wednesday. “I see us following demand that we see out there, with some margin. … Is there enough margin for a cataclysmic scenario? I don’t think there ever is.”

In launching the 737 MAX Aug. 30, Boeing said it has received commitments for 496 of the airplanes from five airlines.

“As we work to finalize those agreements, we are having extensive discussions with other customers about the advantages the MAX will bring to today’s single-aisle leader in efficiency and performance,” McNerney said.

McNerney didn’t shed any new light on whether Boeing was likely to assemble the 737 MAX at its current 737 site in Renton, Wash., or elsewhere.

Following the first commercial flight Wednesday of the composite wide-body 787 Dreamliner, Boeing’s next milestone will be delivering enough of the airplanes to start making a profit on the program.

On Wednesday, Boeing said it expects to deliver 15 to 20 787 and 747-8 aircraft, combined, this year, with two-thirds of them 747-8s. That’s down 10 from previous predictions, which called for a 50-50 mix.

The lower prediction comes because of issues reworking existing 787s to incorporate changes that came out of the flight-test process, McNerney said. He said 787s should be free of need for post-assembly changes by the 50th to 60th airplane.

Boeing completed increasing the 787s production rate from two to 2.5 a month this week, and some suppliers are already starting to move up to the next level, McNerney said. The company is sticking with its expectation of ramping up production to 10 787s a month by the end of 2013, despite analyst skepticism.

“It’s a matter of knowing what we’ve got to do and just putting one foot in front of the other and getting it done,” McNerney said. In response to an analyst question, he said having the 10-a-month rate slip a quarter or two would not have a significant impact on profitability assumptions.

Boeing Chief Financial Officer James Bell said production costs for each 787 will get below the sales price in late 2014 or early 2015 and the program will start making a profit in the early part of the next decade.

Boeing Wednesday said it will spread its accounting of 787 program costs over 1,100 airplanes. That’s more than for previous programs, and allows Boeing to declare the program in a position to make a profit — something that might not be possible with a lower accounting block.

But Bell insisted the calculation of the block is in line with previous programs, noting that Boeing customers have placed firm orders for more than 820 787s and taken options for 200 more.

Boeing previously had used a lower accounting assumption to determine if the 787 program was in position to make a profit, Bell acknowledged. He said the company never went through a detailed analysis to see if the 787 would lose money with an accounting block of 1,000 airplanes.

Boeing isn’t bringing in new 787 orders because it doesn’t have deliver slots for any time soon, McNerney said Wednesday. “Right now we’re sold out through 2019. That’s a long time (in advance) to think about placing new orders.”

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